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Consultation on proposals to reform the UK's financial regulatory framework

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27 Jul 2010

The UK Financial Secretary to the Treasury, Mark Hoban MP, launched a government consultation on the implementation of reforms to financial regulation. The plan is to overhaul the system of financial regulation, giving the Bank of England powers over macro prudential regulation, through a newly established Financial Policy Committee (FPC) to avoid a repeat of the financial crisis.

Among the potential macro-prudential tools suggested as additions to the UK's economic policy framework, is forward-looking loss provisioning. The dynamic provisioning system employed by Spain during the financial crisis is offered as a useful practical example. This system links loss provisions to the credit cycle, so banks are forced to hold higher provisions when credit is growing strongly. The IASB has discussed a dynamic provisioning model, but has decided against it in favour of its expected loss model. Click for:

 

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